A Theory of IPO Waves

36 Pages Posted: 18 Mar 2005

See all articles by Ping He

Ping He

Tsinghua University, SEM

Multiple version iconThere are 2 versions of this paper

Date Written: May 15, 2006

Abstract

In the IPO market, investors coordinate on acceptable IPO price based on the performance of past IPOs, and this generates an incentive for investment banks to produce information about IPO firms. In hot periods, the information produced by investment banks improves the quality of IPO firms, and this allows ex-ante low quality firms to go public and increases the secondary market price, thus synchronizing high IPO volumes and high first day returns. When investment banks behave asymmetrically in information production, the reputations of investment banks are interpreted as a form of market segmentation to economize on the social cost of information production.

Keywords: IPO, Certification, Underpricing, Hot and Cold Market, Reputation

JEL Classification: G24, E32, D82, C73

Suggested Citation

He, Ping, A Theory of IPO Waves (May 15, 2006). Available at SSRN: https://ssrn.com/abstract=684482 or http://dx.doi.org/10.2139/ssrn.684482

Ping He (Contact Author)

Tsinghua University, SEM ( email )

Beijing, 100084
China
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8610-62784554 (Fax)

HOME PAGE: http://www.sem.tsinghua.edu.cn/en/heping

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